CMR Enterprises

Business Marketing

10/13/2010
[Type the company name]
Group 12
Richa Aggarwal
Praveen Sangwan
Puneet Madan
Piyush Nandan

2009193
2009227
2009230 (Ticket Holder)
2009307

Introduction
Sam Marcus recently purchased a small 25 yr old cabinet-making company from its founder 2 yr
earlier, and is looking for dramatic growth. The company competes in commercial and
residential construction markets; shortly after the acquisition, the commercial market was good
but operating cycle was more rigid but on the other hand residential market was good and
more liquid than commercial market, the company gains a large new residential customer. The
case traces the changes in prices made at the company to its biggest customer Blackstone and
how the relationship with this customer begins to deteriorate. At the end of the case, Marcus
must decide whether to fix or end the relationship.
Problem Definition
The problem being faced by the company is to decide on whether to continue the relationship
with Blackstone or terminate the agreement. The decision now has to be taken in the light of
following issues the company is coming across;
Issues

What should CMR do about the Blackstone account now?

How much profit is being generated by CMRs commercial relative to its residential
Business? By the Blackstone account?

Was CMRs decision to initiate a relationship with Blackstone a good one?

What is the nature of CMRs business? How does it differ across the two market
segments?

Why did CMR persist in the Blackstone relationship? How would you remedy such a
situation?

What is the impact of changes made to how the company selects customers and
manages customer relationships on companys relationship with its customers and
Blackstone in particular?

Growth Strategy followed by CMR

CMR is look to increase its profit from 7 billion to 70 billion by increasing it access or scalability
and by making replicable business by investing in value relationship or creating contacts with
general contractor. To achieve its aggressive growth strategy its also made changes in system
like introduction to IT , sales Vp and hiring sales team.

Problems with Blackstone

The relationship between Blackstone and CMR started when Blackstone needs a trustworthy
service provider because earlier experience of Blackstone was not good in terms of delivery and
workload so Blackstone give a high volume opportunity to CMR it was what CRM wants it fits its
strategy of high growth and that will also improve cash flows. But after some time CMR feels
that the cost of serving Blackstone was higher as compare to serve in other residential
customer and even due to its customer interference it was much higher than budgeted by
looking exhibit 6 and even also increase labor cost which cause it to work 2307 extra hours to
work. There are also other issues like

Not Strategic Fit The relation begin with a trust or CMR assumption that Blackstone
will help her in gaining scalability and reducing or gaining operational efficiency but this
doesnt comes true because of homeowners visit to showrooms so this enable CMR to
raises process which aggravate their relation.

Rigidity in cash flows- As from case facts its was given that the company has taken huge
debt and invested lot of money and the growth on commercial business was tough on
cash flows because of rigidity in project cycle flow in commercial than residential and
there is pressure on generating healthy cash flow so Marcus find it to raise prices to
increase profit to reduce to cover higher labor cost from residential with assumption
that they did it earlier and other will follow it.

Project coordination problem among different subcontractors as mention in case and

also another coordination problem face by CMR when they dont have lead time to work
that cause delay and added $4000 additional cost to CMR.

Recommendation
Exhibit 4
Fiscal year 1998
Residential
Top 15 Residential A/cs
Exhibit 6

Revenue
1596000
826000

Fiscal year 1998

Revenue from Blackstone
% of top 15 residential A/cs

Revenue
210314
25.46%

This huge percentage of 25.46% shows that Blackstone Homes is a very important
customer. If CMR has to achieve its objectives of making the company scale able and
replicable business model in this industry, it has to continue the relationship with
Blackstone Homes.
Exhibit 4

Fiscal year 1998

Commercial
Residential
Total

Revenue

Total shop Employees

Commercial
Residential

% of material cost Material Cost

7270000
34%
2471800
1596000
26%
414960
8866000
33%
2886760
75
61
14

75 shop employees is given in the case along with hourly rate of $16/hr and SG&A expenses of
$2.9million which has been appropriated to residential sector on the basis of revenue
contribution.
Residential Cost structure
Shop Employee Cost
SG&A
Material costs
Total Variable Cost

1218980
522039
414960
2155979

Blackstone share in overall residential revenue

Residential
1596000
Blackstone
210314
% share
13.18%
Total variable cost
In case of Blackstone

2155979
284105.606

But as per further calculation we have done we reached at a point that CMR is losing by doing
business with Blackstone because on excess labor cost it wont able to cover its cost, By looking
at exhibit 7(b) it can be said that Blackstone is short of $11.14 per hours of expected revenue
which cause losses of 11.14*2985= $33253 per employee which is huge.
So it needed first to have a conversation with Blackstone then if it wont agree with new prices
then it terminate its relations and looking for other opportunities.